Under the agreement, ACS will reimburse the state for $4.3 million in pre-billed charges along with another $1.1 million. The state will purchase $1.9 million in equipment already installed under the agreement.

"ACS will make the payment in two parts - one half at the time settlement agreement is executed and one half when disentanglement is complete which is slated to occur by the end of the year," said Mike Miller, commissioner for the state Department of Administration.

Miller said the agreement settles any potential litigation that could arise from ending the five-year, $93 million contract to supply telecommunications service to state government.

State officials abruptly ended the deal Sept. 10, saying ACS missed important deadlines and could not live up to terms of the agreement.

ACS, which is the state's largest local telephone service, had been seeking to reduce the scope of service, extend its deadline and increase costs of the contract. The phone company said it was losing money on the deal.

A joint statement quoting both state and ACS officials was issued Wednesday. "The parties agreed that as they attempted to implement the (contract) it became apparent that it had been fatality flawed from its inception," it said.